Classification of Funds for Deposit Work as Advance Payments Under CGST Act Upheld

The appellate authority upheld the ruling that funds received for "Deposit Work" are classified as "Advance Payments," with the "Time of Supply" being the date of receipt of funds, and the "Value of Supply" determined as the amount of advance received. This decision affirmed the interpretation of relevant provisions under the CGST Act, 2017, and upheld the ruling of the Authority for Advance Ruling, Uttar Pradesh.

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Issues Involved:
1. Classification of funds received for "Deposit Work" as "Advance Payment" or "Deposit".
2. Determination of the "Time of Supply" for "Deposit Work".
3. Determination of the "Value of Supply" for "Deposit Work".

Issue-wise Detailed Analysis:

1. Classification of Funds Received for "Deposit Work" as "Advance Payment" or "Deposit":

The appellant argued that the funds received for "Deposit Work" should be classified as "Deposit" rather than "Advance Payment" due to the restrictions imposed on their usage. The appellant contended that the funds were not under their constructive control and any interest earned on these funds had to be returned to the government. They referenced proviso to sub-section (31) of Section 2 of the CGST Act, 2017, which states, "a deposit given in respect of supply of goods or service or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply."

The appellate authority observed that the term "Deposit Work" refers to works funded from non-government sources, which are provided in lump sum before the start of the work with restrictions on their usage. The authority concluded that these funds, although restricted, are still "Advance Payments" as they are provided to ensure smooth completion of the project without delays. The authority emphasized that the restrictions do not alter the character of the advance and confirmed that the funds received for "Deposit Work" should be treated as "Advance Payment".

2. Determination of the "Time of Supply" for "Deposit Work":

The appellant argued that the "Time of Supply" should be the date on which the funds are utilized, not when they are received. However, the authority referred to Section 13 of the CGST Act, 2017, which states that the time of supply of services is the earliest of the following dates:
a) The date of issue of invoice by the supplier.
b) The date of provision of service if the invoice is not issued within the prescribed period.
c) The date of receipt of payment.

The authority concluded that the law is clear that the time of supply is the date of receipt of advance payment, thus affirming that the "Time of Supply" for "Deposit Work" is the date when the funds are received.

3. Determination of the "Value of Supply" for "Deposit Work":

The appellant questioned the determination of the value of supply, arguing that it should not be based on the total amount of funds received. The authority referred to the explanation provided in sub-section (2) of Section 13 of the CGST Act, 2017, which states, "the supply shall be deemed to have been made to the extent it is covered by the invoice or, as the case may be, the payment."

The authority also cited a flyer issued by the Central Board of Indirect Taxes and Customs, which clarified that the value of supply should be the amount of advance received. For instance, if an advance of Rs. 10 lacs is received for a supply worth Rs. 1 crore, the time of supply for the Rs. 10 lacs is at the time of receipt of advance, and for the remaining Rs. 90 lacs, it is determined with reference to the date of issue of invoice and other parameters.

The authority upheld the ruling that the value of the supply, on the advance payment received by the appellant, will be the amount of advance received towards that particular work/supply.

Ruling:

The appellate authority unanimously upheld the ruling passed by the Authority for Advance Ruling, Uttar Pradesh, vide Order No. 45 dated 13.12.2019, affirming that the funds received for "Deposit Work" are "Advance Payments", the "Time of Supply" is the date of receipt of funds, and the "Value of Supply" is the amount of advance received.

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